MODULE 1 INSURANC meanings hereinafter set forth or indicated, unless the context otherwise

E CODE requires:
GENERAL CONCEPTS
(a) A contract of insurance is an agreement whereby one undertakes
DEFINITION (Section 2 (a), Par. 1, Insurance Code) for a consideration to indemnify another against loss, damage or
 Contract of Insurance liability arising from an unknown or contingent event.
- an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
o Other definitions: surety who or which, as such, is doing an insurance business as

- A contract whereby one party called the insurer undertakes for a consideration to hereinafter provided.

pay another party called the insured, or his beneficiary, upon the happening of the
peril insured against, whereby the party insured, or his beneficiary suffers loss or (b) The term doing an insurance business or transacting an insurance

damage or is exposed to liability. business, within the meaning of this Code shall include:

- An agreement by which one party, called the insurer, for a consideration paid by
the other party, called the insured, promises to pay money or its equivalent or to (1) Making or proposing to make, as insurer, any insurance

do some act valuable to the latter, upon the happening of a loss, damage, liability, contract;

or disability from an unknown or contingent event. (2) Making or proposing to make, as surety, any contract of

- Promise by one person to pay another, money, or any other thing of value upon suretyship as a vocation and not as merely incidental to any

the happening of a fortuitous event beyond the effective control of either party in other legitimate business or activity of the surety;

which the promise has an interest apart from the contract (3) Doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an

NOTE: A written insurance contract is called a policy insurance business within the meaning of this Code;
(4) Doing or proposing to do any business in substance

SECTION 2, Whenever used in this Code, the following terms shall have the respective equivalent to any of the foregoing in a manner designed to

1
AADL – INSU NOTES
 evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no
profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed conclusive
to show that the making thereof does not constitute the doing or
transacting of an insurance business.
o Import
- The test to determine if a contract is an insurance contract or not depends on the:
o Nature of the promise
o Act required to be performed
o Exact nature of the agreement in the light of the occurrence, contingency or
circumstances under which the performance becomes requisite
- Whether the assumption of risk and the indemnification of loss is the principal
object and purpose of the contract

(c) As used in this Code, the term Commissioner means the Insurance LAWS GOVERNING INSURANCE
Commissioner. 1. INSURANCE CODE
- primarily governs the different types of insurance contracts and those engaged in
ELEMENTS: insurance business in the Philippines
1. Insured has insurable interest
2. Insured is subject to a risk of loss by the happening of the designated peril 2. CIVIL CODE – applies subsidiarily
3. Insurer assumes the risk a. Articles 739 and 2012
4. Assumption of risk is part of a general scheme to distribute actual losses among a large - on void donations
group of persons bearing a similar risk b. Article 2011
5. In consideration of the insurer’s promise, the insured pays a premium - providing for the applicability of the Civil Code
c. Articles 2021 to 2027
TEST - on annuity contracts
- Whether or not a contract is one of insurance is to be determined by its: d. Article 2186
o Purpose - on compulsory motor vehicle liability insurance
o Effect e. Article 2207
o Contents - on insurer’s right of subrogation

2
AADL – INSU NOTES
 ø Articles 1120 and 1131 o Barrio Treasurers
- Where the insurance company’s consent to the policy was vitiated by error, o Barrio Secretaries
such fact may give rise to the nullity of the contract d. E.O. No. 250
ø Article 1319, par. 2 - Increasing, integrating, and rationalizing the insurance benefits of:
- Contract for a life annuity was not perfected where the acceptance of the o Barangay Officials
application by the home office of the insurer never came to the knowledge o members of Sangguniang Panlalawigan
of the applicant who died o members of Sangguniang Panlungsod
ø Article 1353
o members of Sangguniang Bayan
- Insurance contract is null and void where the consideration is false or
e. R.A. No. 3591, as amended
fraudulent
- Establishing the Philippine Deposit Insurance Corporation

3. SPECIAL LAWS
 SURETYSHIP
a. Revised Government Service Insurance Act of 1977 (P.D. No. 1146, as
- An agreement whereby one binds himself solidarily with the principal debtor
amended)
- Deemed to be an insurance contract within the meaning of the Insurance Code
- for insurance of government employees
when made by a surety who or which, as such, is doing an insurance business
b. Social Security Act of 2018 (R.A. No. 11199)
- for insurance of employees in private employment
 PRE-NEED PLANS
- Contracts, agreements, deeds or plans for the benefit of the planholders which
4. OTHERS
provide for the performance of future service/s, payment of monetary
a. Code of Commerce
considerations or delivery of other benefits at the time of actual need or agreed
b. Property Insurance Law (R.A. No. 656, as amended by P.D. No. 245)
maturity date, as specified therein, in exchange for cash or installment amounts
c. R.A. No. 4898, as amended by R.A. No. 5756
with or without interest or insurance coverage
- Insurance coverage to:
- Includes life, pension, education, interment and other plans, instruments,
o Barrio Captains
contracts or deeds as may be determined by the Insurance Commission
o Councilmen

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AADL – INSU NOTES
  VARIABLE CONTRACTS  P&I CLUB
- Policy or contract on either a group or on an individual basis issued by an - Association composed of shipowners in general who band together for the
insurance company providing for benefits or other contractual payments or values specific purpose of providing insurance cover on a mutual basis against liabilities
thereunder to vary so as to reflect investment results of any segregated portfolio incidental to shipowning that the members incur in favor of third parties
of investments or of a designated separate account in which amounts received in
connection with such contracts shall have been placed and accounted for
separately and apart from other investments and accounts

 BANCASSURANCE
- The presentation and sale to bank customers by an insurance company of its
insurance products within the premises of the head office of such bank duly
licensed by the Bangko Sentral ng Pilipinas or any of its branches under such
rules and regulations which the Commissioner and the Bangko Sentral ng
Pilipinas may promulgate

 MUTUAL INSURANCE COMPANY

- Entities that are “doing an insurance business”
- Owned by policyholders
- Designed to promote the welfare of its members and the money collected from
among them is solely for their own protection
- In a sense, the member is both the insurer and the insured
- No capital stock
- Premiums or contributions of the members are the only sources of funds to meet
losses and expenses

4
AADL – INSU NOTES
 MODULE 1 PART I CASES
RAFAEL ENRIQUEZ vs SUN LIFE ASSURANCE COMPANY OF CANADA
G.R. No. L-15895 Nov. 29, 1920
DOCTRINE:
Article 1262, Par. 2, Old Civil Code provides: “Acceptance made by letter or
telegram does not bind the offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into in the place where the offer
was made. (now Article 1319)
US Courts who take the above view expressly held that an acceptance of an offer of
insurance not actually or constructively communicated to the proposer does not make a
contract. Only the mailing of the acceptance completes the contract of insurance, as the locus
poenitentiae (right to withdraw) is ended when the acceptance has passed beyond the control
of the party.
FACTS:
Joaquin Herrer made an application for life annuity to Sun Life Assurance Company
of Canada through its Manila Office, to which he paid the sum of Php 6,000. His application
was forwarded to the company’s head office in Montreal Canada.
On Nov. 26, 1917, the head office accepted the application and sent its notice of
acceptance to its Manila Office by cable. On Dec 4 of the same year, the policy was issued at
Montreal. Come Dec 18, Atty. Torres signified Herrer’s desire to withdraw his application.
5
AADL – INSU NOTES
The following day, the company’s Manila Office informed Atty. Torres through a letter that
the policy had been issued. Said letter was received by Atty. Torres on the morning of Dec
21, 1917, a day after Herrer died (Dec 20, 1917).
It was revealed during trial that the letter of Nov 26, 1917, notifying Herrer that his
application had been accepted was never actually mailed and thus was not received by
Herrer.
ISSUE/S:
Whether or not the contract for life annuity was perfected.
RULING:
NO, the contract was not perfected.
Article 1262 (now Art. 1319) of the Civil Code provides that “Consent is shown by
the concurrence of offer and acceptance with respect to the thing and the consideration which
are to constitute the contract. An acceptance made by letter shall not bind the person
making the offer except from the time it came to his knowledge. The contract, in such
case, is presumed to have been entered into at the place where the offer was made.”
Additionally, according to the provisional receipt issued by the company, three (3)
things had to be accomplished by the insurance company before there was a contract: (1)
medical examination of the applicant; (2) approval of the application by the head office of the
company; and (3) approval had in some way to be communicated by the company to the
applicant.
 The general rule that “when a letter or other mail matter is addressed and mailed with ETERNAL GARDENS MEMORIAL PARK CORP vs THE PHILIPPINE
postage prepaid there is a rebuttable presumption of fact that it was received by the addressee AMERICAN LIFE INSURANCE CO
as soon as it could have been transmitted to him in the ordinary course of the mails” does not G.R. No. 166245 Apr. 9, 2008
apply here since it has not been shown that the letter was delivered to the post-office,
properly addressed, and stamped. DOCTRINE:

NOTES:
Initially, the Code of Commerce and the Civil Code contained provisions concerning FACTS:
life insurance. Upon the enactment of the Insurance Act (Act No. 2427), the Code of
Commerce provisions concerning insurance contracts were expressly repealed.
ISSUE:
The Insurance Act is silent as to the methods to be followed in order that there may be
a contract of insurance. This silence is supplemented by the provisions of the Civil Code on
insurance contracts and life annuities, pursuant to Article 16 (now Art. 18) of the Civil RULING:
Code which provides, “In matters which are governed by special laws, any deficiency of the
latter shall be supplied by the provisions of this Code.”

The rule that acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge is adopted since its enforcement avoids MODULE 1 PART II CASES
uncertainty and tends to security. It is also identical to the principles announced by a number
of US Courts who expressly held that an acceptance of an offer of insurance not actually or WHITE GOLD vs. PIONEER INSURANCE
constructively communicated to the proposer does not make a contract. Only the mailing of G.R. No. 154514 Jul 28, 2005
the acceptance completes the contract of insurance, as the locus poenitentiae (right to DOCTRINE:
withdraw) is ended when the acceptance has passed beyond the control of the party.

6
AADL – INSU NOTES
FACTS:
White Gold procured a protection and Indemnity coverage for its vessels from
Steamship Mutual through Pioneer Insurance. White Gold was issued a Certificate of Entry
and Acceptance and receipts evidencing payments for the coverage. When White Gold failed
to fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual filed a case against White Gold for collection of sum of money to
recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before
the Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187 of
the Insurance Code, while Pioneer violated Section 299, 300, and 301 in relation to 302 and
303 thereof.
The Insurance Commission dismissed the complaint holding that there was no need
for Steamship Mutual to secure a license because it was not engaged in the insurance
business because it was a Protection and Indemnity Club. Pioneer also need not obtain
another license as insurance agent and/or broker for Steamship Mutual since the latter was
not engaged in insurance business and the former was already licensed; a separate license
solely as agent/broker was superfluous. The CA affirmed the decision of the Insurance
Commissioner. It held that Pioneer merely acted as a collection agent of Steamship Mutual.
Thus, petitioner filed a petition for review before the SC assailing CA’s decision.
ISSUE:
Whether or not Steamship Mutual was engaged in insurance business
7
AADL – INSU NOTES
RULING:
YES. Section 2 (2) of the Insurance Code enumerates what constitutes “doing an
insurance business” or “transacting an insurance business”:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;
(3) Doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code
The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business.
The test to determine if a contract is an insurance contract or not, depends upon the
nature of the promise, the act required to be performed, and the exact nature of the agreement
in the light of the occurrence, contingency, or circumstances under which the performance
becomes requisite.
A mutual insurance company is a cooperative enterprise where the members are both the
insurer and insured. In it, members
 MODULE 4 37 issuance of the policy.

ASCERTAINING AND CONTROLLING RISKS  Modification

CONCEALMENT EXPN:
o Representation may also be one that induces the party to agree to modify
REPRESENTATION the contract (Section 47, Insurance Code)
» Representations – statements made to give information to the insurer to induce him to e.g., representations that induce the other party to agree to novate the
enter into the insurance contract agreement
- Collateral communication made to the other party in writing or by word of mouth o Representations may also be made at the time of or before the renewal of
 Pacific Banking Corporation vs Court of Appeals the policy
- If the whole foundation of the contract fails, the risk does not attach and the SECTION The provisions of this chapter apply as well to
policy never becomes a contract between the parties 47 modification of a contract of insurance as to its original
- Representations of facts are the foundation of the contract and if the formation
foundation does not exist, the superstructure does not arise
- Falsehood in such representations is not shown to vary or add to the  Distinctions and Similarities
contract, or to terminate a contract which has once been made, but to show CONCEALMENT REPRESENTATION
that no contract has ever existed 1. Involves an omission – non- 1. Involves a positive assertion or
disclosure affirmation
 Time of representation 2. Cannot refer to future acts 2. Can pertain to the future because it
GR: can be promissory
o Made at the time or before the issuance of the policy
3. Same test of materiality applies 3. Same test of materiality applies
o Information statements made after the policy takes effect will no longer 4. A party can rescind 4. A party can rescind
have any bearing on the decision of the insurer to issue the policy or the
decision of the insured to enter into the contract  Kinds:
SECTION A representation may be made at the time of, or before,
AS TO FORM
8
AADL – INSU NOTES
 1370 upon the intention of the contracting parties, the literal
- oral - written meaning of its stipulations shall control.
AS TO NATURE OF THE STATEMENTS
- affirmative - promissory If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the
 affirmative representations former.
- involve statements dealing with facts at the time the contract is made ARTICLE In order to judge the intention of the contracting
o promissory representations 1371 parties, their contemporaneous and subsequent acts
- statements made by the insured concerning what is to happen at the time shall be principally considered.
the insurance is already effective ARTICLE However general the terms of a contract may be, they
SECTION A representation as to the future is to be deemed a 1372 shall not be understood to comprehend things that are
39 promise, unless it appears that it was merely a statement distinct and cases that are different from those upon
of belief or expectation. which the parties intended to agree.
ARTICLE If some stipulation of any contract should admit of

 Interpretation 1373 several meanings, it shall be understood as bearing

- Construed liberally in favor of the insured and are required to be only that import which is most adequate to render it

substantially true effectual.

ARTICLE The various stipulations of a contract shall be

 Rules: 1374 interpreted together, attributing to the doubtful ones

o Section 38, Insurance Code that sense which may result from all of them taken

SECTION The language of a representation is to be interpreted by jointly.

38 the same rules as the language of contracts in general. ARTICLE Words which may have different significations shall
1375 be understood in that which is most in keeping with

o Articles 1370 to 1379 of the Civil Code may be applied the nature and object of the contract.
ARTICLE The usage or custom of the place shall be borne in
ARTICLE If the terms of a contract are clear ang leave no doubt
9
AADL – INSU NOTES
 1376 mind in the interpretation of the ambiguities of a
contract, and shall fill the omission of stipulations
which are ordinarily established.
ARTICLE The interpretation of obscure words or stipulations in
1377 a contract shall not favor the party who caused the
obscurity.
ARTICLE When it is absolutely impossible to settle doubts by
1378 the rules established in the preceding articles, and the
doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights
and interests shall prevail. If the contract is onerous,
the doubt shall be settled in favor of the greatest
reciprocity of interests.
If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what
may have been the intention or will of the parties, the
contract shall be null and void.
ARTICLE The principles of interpretation stated in Rule 123 of
1379 the Rules of Court shall likewise be observed in the
construction of contracts.
 Time to Which it Refers
- Representation must be presumed to refer to the date on which the contract
goes into effect
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AADL – INSU NOTES
NOTE: this rule applies only to affirmative representations and not to
promissory representations
 Can Qualify an Implied Warrant
SECTION A representation cannot qualify an express provision in a
40 contract of insurance but it may qualify an implied warranty.
e.g., implied warrant of seaworthiness may be qualified by a representation which
was made earlier by the insured that the ship does not have a particular
equipment on board
 Test of Materiality
SECTION The materiality of a representation is determined by the same rules
46 as the materiality of a concealment.
- There is material misrepresentation if the knowledge of one party thereto will
affect the insurer’s action on his application, wither by approving it with the
corresponding adjustment for a higher premium or rejecting the same or in fixing
the terms and conditions of the policy
e.g., the representation is material if it relates to:
o Health
o Freedom from disease
o Habits
o Medical attendance
o Family relationship
 o Family history
ø There is material representation for instance when the insured in a life
insurance policy falsely represented that she had not smoked for one
year
ø There is material misrepresentation if the applicant in a life insurance
policy stated that she weighed 180 pounds when she in fact weighed
300 pounds
 Representation as to Age in Life Insurance
- Section 233(d) of the Insurance Code provides that the following
provision must be stated in an Individual Life or Endowment Policy:
“A provision that if the age of the person insured, or the age of any person,
considered in determining the premium, or the benefits accruing under the
policy, has been misstated, any amount payable or benefit accruing under
the policy shall be such as the premium paid would have purchased at
the correct age.”
- A misstatement of the age of the insured does not avoid the policy. The
only result is that any amount payable or benefit accruing under the policy
shall be such as the premium paid would have purchased at the correct age
- Misstatement as to the age of the insured must be done in good faith. There
is a ground to rescind for misrepresentation if there is fraud or intent to
deceive consistent with the feature of insurance as contracts uberrimae
fidae
» uberrimae fidae – requires the highest standard of good faith during
disclosure
11
AADL – INSU NOTES
- Standard Life Insurance Policy Provisions issued by the Insurance
Commission under Circular Letter No. 14-93 include the following:
 If the age of the Insured has been misstated, the amount of the
insurance will be adjusted to the amount which the premium would
have purchased at the correct age, applicable risk class and applicable
premium rates as of the policy date.
 If at the correct age, the Insured is NOT eligible for any coverage
under this Policy or its riders, the Company will refund the
corresponding premiums actually received by the Company, less any
indebtedness under this Policy.
- Misdescription of the building in fire insurance, without the fault of the
insured cannot be considered material misrepresentation
 The mistake of the employees or agents of the insurance company
cannot prejudice the insured
- Statements regarding the value of the property are, to a large extent, matters
of opinion
 The ordinary test of value of property is the price it will commend in
the market if offered for sale
 Remedy
- There is material misrepresentation or false representation under Section 44 of
the Insurance Code if the facts fail to correspond with assertions or
stipulations
SECTION A representation is to be deemed false when the facts fail to
44 correspond with its assertions or stipulations.
 - Misrepresentation entitles the aggrieved party to the right to rescind the contract
SECTION If a representation is false in a material point, whether
45 affirmative or promissory, the injured party is entitled to
rescind the contract from the time when the representation
becomes false.
 When Rescission is Not Available
- Injured party cannot rescind the policy on the ground of false representation in
the following cases:
 When there is waiver
 When an action has already been commenced on the contract
 When the incontestable clause applies
- Section 48, Insurance Code
SECTION Whenever a right to rescind a contract of insurance is given to
48 the insurer by any provision of this chapter, such right must be
exercised previous to the commencement of an action on the
contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue
or of its last reinstatement the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured or
his agent.
12
AADL – INSU NOTES
 Estoppel
- Before R.A. No. 10607, there is a second sentence in Section 45 which provides
that “the right to rescind granted under this Code to the insurer is waived by the
acceptance of premium payments despite knowledge of the ground for rescission
- R.A. No. 10607 deleted said provision thereby indicating that acceptance of
premium will NOT estop the insurer from rescinding the policy on the ground of
misrepresentation (i.e., insurer can still rescind the policy even if it accepted the
premium despite knowledge of the ground for rescission provided that other
defenses are not available like the incontestability clause
SECTION In the case of individual life or endowment insurance,
233 the policy shall contain in substance the following
conditions:
(a) A provision that the policyholder is entitled to a
grace period either of thirty (30) days or of one (1)
month within which the payment of any premium
after the first may be made, subject at the option of
the insurer to an interest charge not in excess of
six percent (6%) per annum for the number of
days of grace elapsing before the payment of the
premium, during which period of grace the policy
shall continue in full force, but in case the policy
becomes a claim during the said period of grace
 before the overdue premium is paid, the amount of
such premium with interest may be deducted from
the amount payable under the policy in settlement;
(b) A provision that the policy shall be incontestable
after it shall have been in force during the lifetime
of the insured for a period of two (2) years from its
date of issue as shown in the policy, or date of
approval of last reinstatement, except for
nonpayment of premium and except for violation
of the conditions of the policy relating to military
or naval service in time of war;
(c) A provision that the policy shall constitute the
entire contract between the parties, but if the
company desires to make the application a part of
the contract it may do so provided a copy of such
application shall be indorsed upon or attached to
the policy when issued, and in such case the policy
shall contain a provision that the policy and the
application therefor shall constitute the entire
contract between the parties;
(d) A provision that if the age of the person
insured, or the age of any person, considered in
13
AADL – INSU NOTES
determining the premium, or the benefits
accruing under the policy, has been misstated,
any amount payable or benefit accruing under
the policy shall be such as the premium paid
would have purchased at the correct age;
(e) If the policy is participating, a provision that the
company shall periodically ascertain and apportion
any divisible surplus accruing on the policy under
conditions specified therein;
(f) A provision specifying the options to which the
policyholder is entitled to in the event of default in
a premium payment after three (3) full annual
premiums shall have been paid. Such option shall
consist of:
(1) A cash surrender value payable upon
surrender of the policy which shall not be
less than the reserve on the policy, the basis
of which shall be indicated, for the then
current policy year and any dividend
additions thereto, reduced by a surrender
charge which shall not be more than one-
fifth (1/5) of the entire reserve or two and
one-half percent (2 ½%) of the amount
 insured and any dividend additions thereto;
and
(2) One or more paid-up benefits on a plan or
plans specified in the policy of such value as
may be purchased by the cash surrender
value.
(g) A provision that any time after the cash surrender
value is available under the policy and while the
policy is in force, the company will advance, on
proper assignment or pledge of the policy and on
sole security thereof, a sum equal to, or at the
option of the owner of the policy, less than the
cash surrender value on the policy, at a specified
rate of interest, not more than the maximum
allowed by law, to be determined by the company
from time to time, but not more often than once a
year, subject to the approval of the Commissioner;
and that the company will deduct from such loan
value any existing indebtedness on the policy and
any unpaid balance of the premium for the current
policy year, and may collect interest in advance on
the loan to the end of the current policy year,
which provision may further provide that such
loan may be deferred for not exceeding six (6)
14
AADL – INSU NOTES
months after the application therefor is made;
(h) A table showing in figures cash surrender values
and paid-up options available under the policy
each year upon default in premium payments,
during at least twenty (20) years of the policy
beginning with the year in which the values and
options first become available, together with a
provision that in the event of failure of the
policyholder to elect one of the said options within
the time specified in the policy, one of said options
shall automatically take effect and no policyholder
shall ever forfeit his right to same by reason of his
failure to so elect;
(i) In case the proceeds of a policy are payable in
installments or as an annuity, a table showing the
minimum amounts of the installments or annuity
payments;
(j) A provision that the policyholder shall be entitled
to have the policy reinstated at any time within
three (3) years from the date of default of premium
payment unless the cash surrender value has been
duly paid, or the extension period has expired,
upon production of evidence of insurability
 satisfactory to the company and upon payment of
all overdue premiums and any indebtedness to the
company upon said policy, with interest rate not
exceeding that which would have been applicable
to said premiums and indebtedness in the policy
years prior to reinstatement.
Any of the foregoing provisions or portions
thereof not applicable to single premium or term
policies shall to that extent not be incorporated
therein; and any such policy may be issued and
delivered in the Philippines which in the opinion
of the Commissioner contains provisions on any
one or more of the foregoing requirements more
favorable to the policyholder than hereinbefore
required.
This section shall not apply to policies of group
life or industrial life insurance.
WARRANTY
- Affirmation of fact or a promise that forms part of the terms and conditions of the
policy
- Statement or promise set forth in the policy, or by reference incorporated therein, the
untruth or non-fulfillment, renders the policy voidable by the insurer
15
AADL – INSU NOTES
SECTION A warranty may relate to the past, the present, the future, or to
68 any or all of these.
 Kinds:
o Express – stated in the policy or any of its attachments
o Implied – natural element of the contract imposed by law and is a part of the
policy without the need that it be stated in the policy
o Affirmative warranty – affirmation of fact that exists at the time they are made
- Undertaking that some positive allegation of fact is true
o Promissory warranty – stipulates that certain things shall be done or a specified
condition shall exist during the currency of life of the insurance contract
- One party is bound by an executory stipulation
 Rules on Promissory Warranties:
- Promissory warranty may either be a positive act or an omission
SECTION A statement in a policy which imparts that it is intended to do or
72 not to do a thing which materially affects the risk, is a warranty
that such act or omission shall take place.
SECTION When, before the time arrives for the performance of a warranty
73 relating to the future, a loss insured against happens, or
performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the
policy.
 Formalities of Express Warranty:
 - Section 60 of the Insurance Code provides that no particular form of words is
necessary to create a warranty
- Section 70 imposes the following requirements:
SECTION Without prejudice to Section 51, every express warranty, made
70 at or before the execution of a policy, must be contained in the
policy itself, or in another instrument signed by the insured and
referred to in the policy as making a part of it.
 Breach of Warranty by the Insured:
- Two ways of making an express warranty part of the insurance contract:
 Must be contained in the policy itself
 Expressed in another instrument provided that the separate instrument is
signed by the insured and referred to in the policy
NOTE: any express warranty or condition is always a part of the policy
 Remedy:
 Ang Giok Chip vs. Springfield Fire & Marine Insurance Co.
- When the courts speak of a rider attached to the policy, and thus,
"embodied” therein, or of a warranty “incorporated” in the policy, it is
believed that the phrase “contained in the policy itself” must necessarily
include such rider and warranty
- As to the alternative relating to “another instrument,” instrument could not
mean a mere slip of paper like a rider, but something akin to the policy
itself
 Examples of Express Warranty
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AADL – INSU NOTES
- Section 71 of the Insurance Code provides that a statement in a policy of a
matter relating to the person or thing insured, or to the risk, as a fact, is an
express warranty thereof
- A warranty may likewise be in the form of an “other insurance” clause whereby
the insured warrants that there is no existing insurance over the same property
when the insurance policy takes effect
- Renders the contract defeasible
- To avoid the policy, the insurer must prove such breach
- Insurer may elect to waive his right to avoid the policy in case of breach by the
insured
 Waiver may be express or implied
- A party may rescind the policy if there is breach of warranty on the part of the
other party
 Sections 74 and 75 allow the party to rescind or to avoid the policy only in
case of a material breach
 Breach of an immaterial provision does NOT avoid the policy
SECTION The violation of a material warranty, or other material
74 provision of a policy, on the part of either party thereto,
entitles the other to rescind.
SECTION A policy may declare that a violation of specified provisions
75 thereof shall avoid it, otherwise the breach of an immaterial
 provision does not avoid the policy.

- If the policy itself provides that breach of a warranty or a provision avoids the
policy, the warranty is deemed to be material
- Non-compliance with a warranty is excused when by reason of:
o A change of circumstances, the warranty ceases to be applicable to the
circumstances of the contract; or when
o Compliance with the warranty is rendered unlawful by any subsequent law

 Breach without Fraud:

- Exonerates an insurer from the time that it occurs, or where it is broken in its
inception, prevents the policy from attaching to the risk

 Distinctions between Warranty and Representation:

WARRANTY REPRESENTATION
1. Part of the contract 1. Not part of the contract but a
collateral inducement
2. Written on a policy or its rider 2.
3. Presumed to be material 3.
4. There must be strict compliance 4.

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AADL – INSU NOTES